The Excise Tariff Amendment (Condensate) Bill 2008 amends the Excise Tariff Act 1921 to apply the crude oil excise regime to condensate produced in the North West Shelf project area and onshore Australia. Condensate is a light crude oil extracted from natural gas.

This measure has the effect of removing the current exemption of condensate from the crude oil excise regime.

This measure applies to condensate produced after midnight—Canberra time—on 13 May 2008.

Currently, the crude oil excise applies to crude oil produced from petroleum fields located in the North West Shelf project area—off the coast of Western Australia—and onshore Australia.

The excise is levied as a percentage of the value of crude oil produced from petroleum fields. The first 30 million barrels of crude oil produced from a field is exempt from crude oil excise. This exemption applies to cumulative production from each petroleum field.

The Excise Tariff Amendment (Condensate) Bill 2008 applies the crude oil excise regime to condensate at the rates currently applied to crude oil produced from fields discovered after 18 September 1975.

The top rate of crude oil excise, which will be applied to the value of condensate production, is 30 per cent. This rate applies once annual production reaches just over five million barrels in a year.

This bill introduces provisions to exempt from excise the first 30 million barrels of condensate produced from a field. Production of condensate from a petroleum field prior to midnight on 13 May 2008 will contribute towards meeting this threshold before the crude oil excise becomes payable.

This measure allows the Australian community to share more fairly in the benefits from allowing the extraction of non-renewable energy resources located in the North West Shelf project area and onshore.

The exemption of condensate from the crude oil excise was introduced in 1977 to encourage the development of petroleum resources located in the North West Shelf project.

Since the commencement of the North West Shelf project stakeholders have benefited very substantially from this concession.

As the development of petroleum fields in this region is now reaching maturity, and the world prices for non-renewable energy resources are high, there is no need to retain this generous concession.

Given the similarity between condensate and crude oil, the two commodities should be taxed in a similar manner. It should be noted that the North West Shelf gas project participants will continue to benefit from the 2001 reduction in the top rate of crude oil excise. This concession has already delivered around $1 billion in benefits and acts to offset the impact of the extension of the crude oil excise to condensate.

Imposing excise on condensate will result in a reduction in royalties payable to the Western Australian government. This is because crude oil excise payments are a deductible expense for calculating the offshore petroleum royalty.

The Australian government will provide the Western Australian government with ongoing compensation for the loss of shared offshore petroleum royalty revenue resulting from imposing the crude oil excise on condensate.

The government will make an initial payment of $80 million to the Western Australian government as compensation for reduced revenue in 2007-08. Payments in future years will be adjusted to equal the impact of removing the condensate exemption on royalty payments to Western Australia.

This measure generates substantial annual revenue for the budget, estimated at $2.5 billion over the period to 2011-12. It makes a significant contribution to the government’s fiscal discipline.

Moreover, it increases the return to the Australian community for allowing private interests to extract non-renewable energy resources located in the North West Shelf project area and onshore Australia.

Full details of the measures in this bill are contained in the explanatory memorandum.

I would also note that the opposition has expressed some concern about this measure and I note in particular the shadow Assistant Treasurer, the honourable member for Stirling, last night in the House expressed a concern that this would lead to higher petrol prices. Of course it is a valid question to ask by my honourable friend the shadow minister as to whether this will increase petrol prices, and he would not be doing his job unless he asked that question. Indeed, the government very thoroughly examined whether this would have any impact on petrol prices. I would be more than happy to facilitate for the opposition a full briefing from Treasury on why this will not have any impact at all on Australian petrol prices.

The removal of this exemption will not lead to increased petrol prices in Australia for the simple reason that petrol prices in Australia are set by international markets and we are a price taker in these markets. Successive Commonwealth governments since 1977 have adopted an import parity pricing policy to determine national pricing levels for motor fuels. This means that the domestic price of petrol in Australia is linked to international petrol prices to ensure local refiners will not sell their product offshore to obtain higher prices and potentially leave no fuel in the Australian market. As I said, I will separately communicate to the shadow minister but, for the benefit of the House, the government is more than happy to facilitate a Treasury briefing on this matter.